1. SuperValu (stock symbol: SVU) uses KPMG LLP as its independent accountants (SuperValu, 2000, p. 32).
2. According to KPMG LLP, the financial statements (including the statement of cash flows) were prepared in accordance with generally accepted accounting principles as practiced in the USA. KPMG LLP believes that the company does not appear to have deliberately misrepresented its financial position (SuperValu, 2000, p. 32).
3. The external audit verifies that the procedures used to develop financial information issued by the company are valid and in keeping with standard accounting and control practices. External auditors look for irregularities in reporting practices or in the way in which inventory is handled (for example) to determine that the information on financial statements is fundamentally valid. External audits do not verify the accuracy of the financial statements themselves, but merely validate that the procedures used to produce those statements are in keeping with standard practice (SuperValu, 2000, p. 32).
4. When an auditor prepares a report stating that the financial statements have been prepared in accordance with generally accepted accounting principles, the auditor is telling the company (and its shareholders) that the financial statements are most likely an accurate representation of the company's financial position. If an audit report states that there are irregularities, the company cannot depend on its financial statements to reflect accurately its position. More importantly, investors and creditors will immediately lose confidence in the company's ability to continue as a viable operation since its financial statements may well be inaccurate.
For the corporation, an audit report that gives the opinion that the financial statements are an accurate representation of the business means that the company's personnel can use those financial statements in their corporate planning. More importantly,...